Watch HowardCohodas Trade Index Options Credit Spreads

This is a discussion on Watch HowardCohodas Trade Index Options Credit Spreads within the Trading Journals forums, part of the Reception category; Originally Posted by arabianights You won't ever blow up if you reduce size religiously in proportion to your account, given ...

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Old Dec 5, 2010, 6:24pm   #71
 
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Re: Watch HowardCohodas Trade Index Options Credit Spreads

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Originally Posted by arabianights View Post
You won't ever blow up if you reduce size religiously in proportion to your account, given that you have a quantifiable downside.

However, you may have a system that almost surely will make your account approach an asymptote at 0...
The Gambler's Ruin Theorem nicely illustrates that even a strategy with a positive expectation is not immune from... well, ruin.

"Asymptotically approaching 0" and "for all practical purposes" are two of my favorite concepts in physics.
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Old Dec 5, 2010, 6:30pm   #72
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Re: Watch HowardCohodas Trade Index Options Credit Spreads

"The mathematical expectation of my strategy is positive."

Prove this...
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Old Dec 5, 2010, 6:41pm   #73
 
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Re: Watch HowardCohodas Trade Index Options Credit Spreads

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"The mathematical expectation of my strategy is positive."

Prove this...
First, why would someone who studied mathematics at Case Institute of Technology (before they merged with Western Reserve University) build a strategy that did not have a positive expectation? And what trader would risk serious money with a strategy that did not have a positive expectation? Do you?

And second, I believe I have shown my calculations in this forum. Have you looked? If you look and can't find it, I'll repeat it. Let the search function be your friend. And prove you did it.
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Old Dec 5, 2010, 6:51pm   #74
 
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Re: Watch HowardCohodas Trade Index Options Credit Spreads

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Originally Posted by HowardCohodas View Post
The Gambler's Ruin Theorem nicely illustrates that even a strategy with a positive expectation is not immune from... well, ruin.
It is, actually, subject to correct money management.

Of course as the learned DT says this assumes infinite granularity, but that isn't as much of a problem as you may think.

P.S. It is not a theorem. You may find this overly pedantic but it's pretty important.
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Old Dec 5, 2010, 6:52pm   #75
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Re: Watch HowardCohodas Trade Index Options Credit Spreads

My point was rhetorical. It is impossible to prove any trading strategy has a positive expectation as the set of possibilities is unbounded and uncertain.

With rolling a dice there is risk but no uncertainty.
In a trading system there is risk and uncertainty.
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Old Dec 5, 2010, 7:00pm   #76
 
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Re: Watch HowardCohodas Trade Index Options Credit Spreads

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Originally Posted by arabianights View Post
It is, actually, subject to correct money management.

Of course as the learned DT says this assumes infinite granularity, but that isn't as much of a problem as you may think.

P.S. It is not a theorem. You may find this overly pedantic but it's pretty important.
Isn't the application of Gambler's ruin money management? I am implying money management by referencing Gambler's ruin.

Pedant away. Back at you.
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Old Dec 5, 2010, 7:07pm   #77
 
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Re: Watch HowardCohodas Trade Index Options Credit Spreads

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My point was rhetorical. It is impossible to prove any trading strategy has a positive expectation as the set of possibilities is unbounded and uncertain.

With rolling a dice there is risk but no uncertainty.
In a trading system there is risk and uncertainty.
First, are you claiming your analogy of the roulette strategy has a positive expectation?

Second, if a strategy has a fixed risk and a fixed return and a historically validated probability of success/failure, how do you claim it is unbounded and without the ability of making a valid estimate of mathematical expectation?

A lot of profit is made by companies over long periods of time with historically validated data in the face of uncertainty. The insurance industry comes to mind as one.
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Old Dec 5, 2010, 7:11pm   #78
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Re: Watch HowardCohodas Trade Index Options Credit Spreads

no no, it is obvious that any roulette strategy has a negative expectation.

I may need to read more of your method (although I have read this whole thread) but an iron condor does not have a fixed risk...?
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Old Dec 5, 2010, 7:16pm   #79
 
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Re: Watch HowardCohodas Trade Index Options Credit Spreads

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I may need to read more of your method (although I have read this whole thread) but an iron condor does not have a fixed risk...?
Show me where I miscalculated. An Iron Condor is made up of a CALL spread and a PUT spread with the same number of options on either side of the current underlying price. Each spread is constructed with each leg having the same number of options such that it has fixed risk and fixed reward. How can the combinations of two spreads each with fixed risk and fixed rewards end up with a not having fixed risk?
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Old Dec 5, 2010, 7:51pm   #80
 
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Re: Watch HowardCohodas Trade Index Options Credit Spreads

Quote:
Originally Posted by HowardCohodas View Post
Isn't the application of Gambler's ruin money management? I am implying money management by referencing Gambler's ruin.

Pedant away. Back at you.
I don't care what wiki says, it isn't

Not sure what you mean by "applying" gambler's ruin.
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